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Sat, Oct 21, 2006 - Page 10 News List

Google's profits nearly doubled in third quarter

FAT FIGURES The Internet search giant made a profit of US$733 million on sales of US$2.69 billion in the last quarter, outpacing its largest competitor, Yahoo

NY TIMES NEWS SERVICE , NEW YORK

The world's largest search engine said on Thursday that its profits last quarter nearly doubled from a year ago, as it maintained a torrid growth rate that is highly unusual for a company of its size.

The numbers are all the more significant because Google's largest rival, Yahoo, has been faltering, as sales have tapered off for both its search and display advertising.

"Forty-eight hours ago we were discussing Yahoo; the contrast is pretty amazing," said Jordan Rohan, an analyst with RBC Capital Markets. "This is an eye opening and refreshing quarter for Google investors."

In after-hours trading, Google's shares surged 7.5 percent. In regular trading, before the results were reported, the shares rose U1.6 percent, to US$426.06.

Eric Schmidt, Google's chief executive, attributed the company's growth to its unusually high level of investment in research and computing equipment.

"In our model, the capital investments we are making give us differentially better service quality, better scale and better leverage," Schmidt said. "And we intend to continue this."

Google spent US$313 million for research and development in the quarter, up 76 percent from a year ago. It also invested US$492 million in capital equipment, main-ly for computers and networking systems.

At the same time, Google continued to pack more engineers and ad sales people into its overflowing campus in Mountain View, California, and its dozens of other sites around the world.

The company added more than 1,400 employees in the quarter, for a total of nearly 9,400 workers on Sept. 30.

The profit margins from Google's core search advertising business are so high that it can spend liberally on development and still report very strong profits.

Google earned US$733 million, or US$2.36 a share, up 92 percent from US$381 million, or US$1.32 a share in the period a year ago.

Excluding charges related to stock based compensation, it earned US$2.62 a share, well above analysts' estimate of US$2.42.

Google had revenue of US$2.69 billion, up 70 percent from the quarter a year ago.

For advertising that Google sells that is displayed on other sites, the company passes a majority of the revenue to the site owner. Excluding those payments to Web sites, Google's revenue was US$1.86 billion, slightly more than the US$1.82 billion analysts had expected.

Google continued to extend its reach overseas, with 44 percent of its revenue from outside of the US, compared with 39 percent a year ago.

As for its core search business, which represents nearly all of the company's revenue so far, Google continues to gain market share. In September, 50 percent of all Web searches in the US were conducted on Google, compared with 23 percent on Yahoo.

The company said that while growth in users slows typically in the summer, it benefited from some changes in how its system chooses advertisements to show on a page. Most notably, it started to analyze the Web sites of advertisers to make sure that they are related to what users are looking for.

While this resulted in downplaying some ads, Larry Page, the company's other co-founder, said it actually resulted in higher income for Google.

"Over time, as people notice the ads are higher quality, they are more likely to notice them and click on them, and that does affect revenue," Page said in an interview.

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